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Portfolio

Eni addresses its Norwegian value at risk

Eni Norge and Point Resources to merge into independent Norwegian E&P
Eni and private equity investor HitecVision announced today that Eni Norge and Point Resources are merging to form Vår Energi AS (Eni 69.6%, HitecVision 30.4%). The combined company will have a portfolio of 17 producing oil and gas fields with current output of 180kboe/d, expected to rise to 250kboe/d by 2023. The incremental production will come from the development of ten existing assets with recoverable resources of 500mboe. Capex over the next five years (for new developments, redevelopment of existing fields, and exploration) is estimated by the company at NKr65bn ($8bn).

Deal metrics look attractive
The announced transaction appears to be ultimately accretive on most metrics – both financial and operational. With more production to come on from Point Resources in the medium term the initial production effect (we estimate 2018 Eni Norwegian production at ~135-140kboed but Eni expects Point at ~34kboed) will likely see a small dilution but the net to Eni in 2023 is ~175kboed vs an Eni stand-alone of ~140kboed (somewhat depending on start-up of Castberg). The combination is material (3P resources of ~1.3bn boe, mostly oil) and efficient (break-even price of <$30/bbl).

Elegantly addresses a key Eni issue with a proven governance model
Eni has enjoyed considerable exploration success in Norway but has been hurt by operational hiccups. This combination should have the benefit of creating a new, Norwegian governance structure. It creates greater critical mass which likely allows it to take up further opportunities in a fiscally and operationally efficient fashion. It consolidates and deepens Eni's exposure to a key OECD province. The obvious comparison is Aker-BP which has been a notable success albeit there is no discussion of a minority listing at present.

Valuation: Buy, €18.50 price target
We set our price target using a 2019E ($70/bbl normalised) EV/DACF of 5.1x, a 14% premium to the three-year average.

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